In the wake of the collapse of a St. Albans-based organization charged with promoting economic development, a board member says: 'A lot of us are very ignorant as to why things happened as they happened'

Nov. 17, 2012

The U.S. Department of Commerce's Economic Development Agency (EDA) acknowledged this fall that it has investigated 'possible financial irregularities' by the Economic Development Council of Northern Vermont — irregularities it first learned of in the fall of 2009. / EMILY McMANAMY/Free Press

Written by

Free Press Staff Writer

The U.S. Department of Commerce's Economic Development Agency (EDA) acknowledged this fall that it has investigated 'possible financial irregularities' by the Economic Development Council of Northern Vermont — irregularities it first learned of in the fall of 2009. / EMILY McMANAMY/Free Press

Economic Development Councils

Such councils operate across the United States. They are located in economically depressed areas (such as Vermont’s northern tier counties) and funded primarily through grants administered by the U.S. Department of Commerce’s Economic Development Administration, the EDA. The Economic Development Council of Northern Vermont (the Council) was created in 1975, during the administration of President Jimmy Carter, to “advance the economic and physical development of (northern Vermont) and the social welfare of the people in that area,” in the words of its Web site. It provided start-up money to fledgling businesses, helped create industrial parks and the Hardwick-based Vermont Food Venture Center. It attempted in its last years to build a multi-million-dollar high-speed broadband network, North-Link. The Council was a source of development money for Vermont’s economically-challenged northern tier of counties. The intent was to support projects that would add jobs and income locally. The Council was managed by a professional staff and overseen by a 27-person board of individuals from regional non-profits and local elected officials. The full board, which met infrequently, elected an executive committee whose job was to monitor the organization and its staff.

More

ADVERTISEMENT

Three years after an economic-development agency serving northern Vermont counties collapsed, the financial missteps that led to its failure remain shrouded in confusion and largely uninvestigated.

Former employees and members of its large board say the Economic Development Council based in St. Albans operated with scant oversight from its board and from the U.S. Department of Commerce’s Economic Development Administration — the agency which provided the council with its grant money.

The EDA, after repeated questions from the Free Press, acknowledges that it became “aware of possible financial irregularities” by the council in 2009, “suspended all open grants, mounted a still incomplete investigation by the Commerce Department’s inspector general, required audits of the council and its two subsidiaries and has now required the council to repay $231,500 “in unauthorized disbursements.”

The council, formally known as the Economic Development Council of Northern Vermont, was intended to funnel primarily federal development money to worthwhile projects in economically depressed areas — in Vermont’s case, the state’s six northern counties. Similar organizations exist across the country.

It received grant money from the EDA and matching funds from other sources and provided administrative support for two council subsidiaries — a last-resort lender, the Economic Development Fund of Northern Vermont, and a group called Northern Enterprises, which was attempting to build a high-speed Internet network, North Link, in the region and run a center devoted to helping start-up agricultural-related businesses.

The council ceased to function in the fall of 2009 when the longtime director, Connie Stanley-Little, its development director Maureen Connolly and Tammy Underwood, its financial officer, resigned.

Stanley-Little had told the council’s board over the previous months that its financial shortfall was temporary. But when she left the organization, its funds had been substantially depleted after it borrowed improperly from a subsidiary organization’s loan fund — money that the last-resort lender, the Economic Development Fund of Northern Vermont, must now repay.

(Page 2 of 9)

One of the council employees who left in the fall of 2009, development director and grant writer Maureen Connolly, told the Free Press she became concerned about documents and computers being removed from the Council offices in the fall of 2009 and $400,000 which should have been but wasn’t available for expenses on the North Link project. She said she informed board officials and the FBI.

The FBI did not return calls about the case.

For reasons which remain unclear, neither the EDA nor local elected and local planning officials on the council’s board nor any member of the state’s congressional delegation ever notified the public of the council’s dissolution, nor did they ever explain, or, so far as can be discovered, investigate the reasons for the collapse or determine authoritatively that all money was used properly.

The Free Press began its examination of the council’s troubles following a tip growing out of an out-of-state reporter’s investigation into the financial collapse of another economic-development organization.

After repeated questions from the Free Press, the EDA told the Free Press it had “suspended” all of the council’s open grants as well as those of two related organizations in 2009, and it required them to have independent audits.

The EDA wrote the Economic Development Fund of Northern Vermont in October to say it was rejecting an appeal of its actions. The federal agency said it had concluded that the Economic Development Fund, administered by Stanley-Little and her staff, had made “unauthorized transfers totaling $131,500 to the Council” and an “unauthorized loan of $100,000 to an affiliated corporation, Northern Enterprises.”

“This is the final decision,” Acting Assistant Secretary Matthew Erskine of the EDA wrote. “There are no other appeals available within the U.S. Department of Commerce.”

Erskine told the Fund that other issues couldn’t be considered until the $231,5000 was repaid.

Auditors' concerns

The audit required by the EDA following the council’s collapse in late 2009 and provided to the council more than a year later, on Dec. 31, 2010, raised serious questions about the council’s handling of public money.

(Page 3 of 9)

The audit was performed by McSoley McCoy and Co. of South Burlington. Auditors told the council board that former managers hadn’t cooperated with their examination of the financial records. “We were unable to obtain written representations from management of the Council for the year...as required under generally accepted auditing standards,” the auditors said.

The auditors said that because of that lack of cooperation, “the scope of our work was not sufficient to enable us to express...an opinion on the 2009 financial statements.”

The audit, however, recorded a sharp drop in the council’s net assets of more than $430,000 during 2009, leaving it with assets of $63,490 and liabilities, the auditors said, of $252,029. “The Council’s revenues,” the audit said, “have declined by 51 percent due to allegations of mismanagement of the programs and terminations of the employees. As a result the Council has significantly reduced operations during 2010 down to a level that would not support the Council as a going concern.”

In a supplemental report, the McSoley McCoy and Co. auditors noted problems with the council’s handling of accounts:

• Employees had council credit cards. “Furthermore,” the auditors said, “the cards are used for a variety of purchases, including in some instances, personal expenses.” • While the council’s policy required double signatures on all checks, the policy wasn’t followed.

• Documentation of financial transactions was missing, including supporting documentation for allocating expenses to individual council programs; missing documentation for cash allocations to various programs; missing documentation authorizing payments on invoices; a failure of the managers to list the council’s assets; and “support for approved pay rates (for employees) could not be located.”

• Auditors said the council was slow to update its accounts, which, in turn, “breeds inefficiency and weakens internal controls.” That, the auditors said, led to a need for “numerous audit adjustments” and resulted in missing documentation for transactions, unevaluated uncollectible loans, delays or a failure to keep the books current, “the use of incorrect billing rates,” and the failure to provide “proper documentation” on the handling of grants.

(Page 4 of 9)

“It is imperative that the Council improve accountability over the financial reporting process at the management and board level,” the auditors said. “We feel that many of the problems identified could have been avoided or addressed much earlier.”

• The council provided a vehicle for staff to use, but the log of its use wasn’t properly maintained, and auditors couldn’t determine when the vehicle was used, by whom, or how much.

• Finally, focusing on the issue which led the EDA to shut off the money spigot to the council, auditors said they found “numerous instances” of fund transfers from the Economic Development Fund of Northern Vermont to the council, to cover its “current cash needs.” The fund was not repaid, and “no information of such activity was communicated to the Board of Directors. The Council believes,” auditors said, “that they will not be able to repay these funds.”

Stanley-Little told the Free Press in August that she had been with the council for 27 years and resigned in the fall of 2009 “for health reasons.”

She attributed the financial problems in 2008 and 2009 to the hostility of President George W. Bush to development councils. “When Bush came in,” she said, “many of us went of of business. It was a struggle. I sleep well at night,” she said.

Stanley-Little said she did not take any records out of the office. She told the Free Press last week that she will not comment further about what happened. “I did nothing wrong,” she said. “I have no comment. I’m not going to be a part of it.”

Tale the minutes tell

The record of the council’s collapse is notable for the casual oversight they reflect on the part of its board. Minutes of board meetings from 2008 and 2009 reflect a lack of interest in the details of how the organization was operating, whether it was doing its job, and whether it was responsible in its handling of public money. When the organization collapsed, the board did not publicize what had happened and still has not.

The minutes from June 17, 2009, record that Stanley-Little spoke of “the current downturn” in council finances, but she assured the board that EDA had a “backlog” in processing grants and that money was forthcoming. The board asked no questions. It did not inquire about the severity of the “downturn, though the minutes said without elaboration the issue had been discussed in a meeting of the board’s executive committee.

(Page 5 of 9)

On July 8, 2009, minutes from a joint meeting of the Economic Development Fund’s board and the council’s, the unauthorized loans were discussed, and Stanley-Little said the council had “borrowed” $130,000 from the fund and said she was unsure when it could be paid back but hoped it could be done by the end of the year. “Mr. (Tom) Adams (fund president) stated time was of the essence as The Fund wanted the issue resolved before year end audits to minimize findings.”

Stanley-Little told the board members that she had used such tranfers previously “but ... had always put the funds back. Fund board member Edward Zuccaro said, ‘it was to be noted the record that the ‘borrowing’ (quotation marks included in the minutes) of funds would stop, that it was not to happen again even on a short-term basis,” according to the minutes.

Asked if the EDA knew of the unauthorized transfers, Stanley-Little “stated that many districts within the Philadelphia Region were struggling, but that we had not specifically spoken with EDA. The financial reports that are required were sent at years end as always,” the minutes said, “but there was a concern that we not jeopardize projects as a result.”

Two months later, in September 2009, just before she quit, Stanley-Little told the council board that Connolly, the grant writer and second in command, would quit as of Oct. 1. She provided no explanation, and, once again, the board asked no questions, according to the minutes. Stanley-Little also repeated her assurances from June about money due the council, and the minutes repeated in the same language they had used in June that the money from the EDA was forthcoming.

It wasn’t, and when Stanley-Little quit, the cupboard was essentially bare.

On Nov. 4, 2009, following the departure of its managers, the board filled Stanley-Little’s position. It appointed Bill Zuccareno the new acting director. Zuccareno was a staffer who had worked on international trade issues.

Without any elaboration or explanation of the nature of the crisis facing the council, the meeting minutes said the major question facing the council was how it “could survive until January and into the future. It was noted,” the minutes said, “that unrestricted revenues were needed to pay back the Fund, Northern Enterprises and the retirement account and that currently there were none available.”

(Page 6 of 9)

Also, the board approved a motion to return the council’s car to the dealership “with an expected loss of around $2,000.”

Connolly told the Free Press that even knowing it was operating at a deficit in June 2009, the council board agreed to buy a car for the first time. Previous cars had been leased, she said.

The minutes note the board met in executive session, but beyond Zuccareno’s appointment, they made no mention of what was discussed behind closed doors.

Board 'did not provide oversight'

In August 2011, the council’s board elected Ruth Wallman as its new president. She is the vice president of the Lake Champlain Regional Chamber of Commerce in North Hero and the executive director of the Lake Champlain Islands Economic Development Corp.

She is trying to reconstitute the council as a useful source of federal development funds for Vermont’s poorest counties.

She told the Free Press that one cause of the debacle was the failure of the executive committee to do its job. “(It) did not provide oversight,” she said.

Wallman has been a council board member since 2003, but said in a message to the Free Press that she was “unaware there were financial difficulties until the staff had already left, leaving the mess behind.”

She acknowledged the board was incurious. “We often would get oral reports from Connie (Little-Stanley). The full board didn’t discuss money. We had snacks, got oral anecdotal reports, and then we’d leave.... (There is) no way that most of us would have known that something was awry. It’s a sorry situation.”

“The staff had a great deal of autonomy,” said Catherine Dimitruk, director of the Northwest Regional Planning Commission in St. Albans and a member of the council board for more than a decade. “The executive board had oversight. The overall board (which generally met quarterly) had no role in day-to-day-management.”

After the collapse, she and Jennifer Hopkins, a board member of the Economic Development Fund, were asked by the council board “to pick up the pieces,” Dimitruk said, and try to keep the EDA’s council designation for northern Vermont.

(Page 7 of 9)

“A lot of us are very ignorant as to why things happened as they happened,” Hopkins told the Free Press in October at a meeting in Newport, explaining that quarterly council board meetings were poorly attended and that members of the fund’s board trusted the council staff to do its job.

Dimitruk and other council board members say they never learned precisely why the staff left as it did, and recreating the history has been difficult.

Dimitruk served on the board because of her role with the planning commission, but she said she was always uncomfortable with the level of information council managers gave the board and a testiness by Connie Stanley-Little, the longtime manager, at questions from the board.

Stanley-Little, she said, was “reluctant to give information” and would either “delay, or not give it, or give a half-answer. I never felt like I had enough information,” Dimitruk said. “It was a culture of questions not being OK, not a culture of openness.”

She said that council managers apparently used upfront grant payments from EDA for purposes other than the grant. “I think that some of the advance funds were used to cover past expenses,” she said. “When I went back to pick up the pieces and look at the finances, I saw expenses that exceeded the grants.”

She said she didn’t see a reason to involve the police. “Nothing I saw suggested the city police should be called,” she said. “What I saw was what I thought was improper use of grant funds, and that was an EDA responsibility to follow up on.”

In early December 2009, Dimitruk wrote a long message to the council board members, expressing concern about what had happened.

“I have grave concerns about the ongoing management of (the council),” she said, “the plausibility of continuing operations and the liability we all face as board members of this organization.”

She said the organization was out of money and would likely need to lay off the remaining employees. She also said the council needed a “clear plan” to pay the organization’s debt, including the “accumulated liabilities of past-due retirement funds,” as well as money “owed to the Fund for monies improperly spent by (the council).

(Page 8 of 9)

She said that while the acting director, Zuccareno, had assured the board the council’s “cash flow” was adequate, “that clearly is not the case.... With the accumulation of all this information,” she said, “I believe it is very possible (the council) is not solvent.”

Zuccareno began working for the council in early 2006. He was hired to help the council create a cross-border trade group with Quebec.

He told the Free Press that Stanley-Little walked out without explanation, telling him one day in October 2009 that it was her last day and that she didn’t plan to help with any transition.

He described the council as operating in those days in a sometime hostile environment, with regional planning and development groups “making a play for EDA funding.”

By contrast, he said, in Quebec, regional information comes from local mayors and then all the towns contribute to projects. “Here,” he said, “you have counties fighting each other, scrapping for the same bits of income. It’s a power game. So, you had all these people from (competing organizations) sitting on the (council’s) board.”

After the managers left, Zuccareno briefly became interim manager, but he was let go in February 2010 when the council could no longer pay his salary. He said he has lost his council 401(K) and no one can tell him what happened to it.

Zuccareno, in retrospective agreement with others, faults the council’s board for inattention to financial details. The council operated, he said, with “a lack of executive review,” and the board meetings were “a kind of meet, greet and eat” encounter.

He said he has no insights about why the council failed, but blamed a lack of openness.

“The council had a lot money coming through the pipeline, and then it was all gone,” he said.

For her part, Hopkins, who worked with Dimitruk to keep the council afloat, said she discovered no illegality when she went through the financial records following Stanley-Little’s resignation.

She is a former book store owner and a member of the Economic Development Fund’s executive board.

(Page 9 of 9)

“There ain’t nothing missing,” she said. “They paid their salaries and operating expenses. I honestly could say I couldn’t find anything. There was distortion. It was not appropriate behavior. But it’s not go-to-jail behavior.”

She, Adams and members of the council’s current board say no forensic audit — a deliberate search of an organization’s accounts for criminal behavior — was ever performed, mainly because no money remained to pay for such an investigation.

Hopkins told the Free Press that while the Economic Development Fund’s board was “outraged,” to learn of the size of the “borrowing” by the council, it hadn’t forestalled such activity on the part of the group which was administering its loans. “You hire a group to manage your funds and prepare your loan papers and documentation. You don’t expect them to dip into your funds,” she said.

Many questions about the council’s management and Board and EDA oversight of the council prior to the collapse remain unanswered, and many of those associated with the council were vague in their recollections.

Some also suggested that the collapse of the council was not worthy of public discussion so long after the fact.

Wallman was terse: Because others were uncooperative in discussing the council’s history, she said, “the burden falls on us, who tried to save the organization. Writing a story with us in it,” she said, “busy volunteers who do our best in a not perfect situation, will certainly add to the evidence that it is not a good idea to volunteer if this is the kind of notoriety you receive.”